Rachel Bridge, the Enterprise Editor of The Sunday Times, wrote a really interesting article at the weekend about credit insurance. It talked about a sausage maker in Devon which took out credit insurance a few years ago after suffering a bad debt of £22,000. The finance director was quoted as saying that "if our credit insurer will provide cover up to a certain limit, then we will trade. If not, we will think again. We either do not do business with that customer, or we trade on different terms, perhaps asking for money upfront".
The article went on to outline how the amount of cover provided by the big three insurers has increased over the past year, and how some have introduced new measures and more user-friendly policies. Fabrice Desnos, Xavier Denecker, and Marc Jones from Euler Hermes, Coface, and Atradius respectively were all quoted and - since all three are good friends of the ICM - it made me read the article more carefully.
It was a useful and practical guide to what is a difficult product for many SMEs to understand and, indeed, for government ministers to get their heads around. I remember many conversations a couple of years ago trying to explain how credit insurance works without ever feeling I was making much progress. Credit insurers were coming in for some pretty bad press at that time, some of it deserved, but the sector has moved on, and so too its products. Credit insurance in the right circumstances can be a really useful tool for business, including small ones, and I'm pleased to see it being explained by a respected journalist to whom SMEs will listen.
There's been a recent interesting debate on the ICM Credit Community LinkedIn group about whether credit managers who have no bad debt are the good ones. My view is that good credit professionals understand the balance of risk and reward and accept bad debts as a price of profitable sales activity, but that doesn't alter the fact that the impact of a bad debt - particularly to small businesses and especially if it is relatively disproportionate - can be devastating. Anything that helps SMEs to understand better how to manage credit and risk is to be welcomed.
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